The possible Fed interest rate cut, Donald Trump's pro-crypto stance and the aftermath of the fourth halving are some of the factors influencing Bitcoin at the start of the final stretch of the year.
Better winds are blowing for Bitcoin. On Tuesday, September 10, the popular cryptocurrency rose in value to around US$ 57,225. An improvement in the global economic outlook, including a possible drop in inflation in the United States, provides security to users of this digital asset. The positive trend has also spread to other cryptocurrencies, to the point that Ethereum (ETH) has risen almost 4%, with levels exceeding US$ 2,400. Meanwhile, the Binance Coin (BNB) has gained more than 5%, showing an increase in investor confidence.
However, the notable decline in Bitcoin registered between September 5 and 7 is still latent. Also, on the 2nd of this month, more than US$ 300 million left the cryptocurrency's investment funds. We are talking about a striking phenomenon, although not very unusual. This is according to Nicolás Pizarro, CPO of Skipo, a digital wallet focused on the purchase, sale and transfer of cryptocurrencies.
“While this capital flight contrasts sharply with the previous week, where more than US$500 million entered cryptocurrency investment funds, this is a more common behavior than believed given the inherent volatility of cryptocurrencies. Specifically, this situation occurred in the middle of a week where stronger-than-expected economic data was released in the US, which has decreased the probability of a cut in interest rates, thus discouraging investment in risky assets, such as Bitcoin, Pizarro told AméricaEconomía .
Likewise, Nicolás Jaramillo, COO of Arch.finance, attributes the capital outflow from the funds to the behavior of investors. “There may be several factors: the first is related to profit-taking by the first investors who entered this instrument and who have seen spectacular returns. On the other hand, there is normal speculation in this type of asset based on future expectations regarding macroeconomic scenarios and the potential risk of recession,” he explained to AméricaEconomía .
It is worth noting that August was a more volatile month than usual for Bitcoin. The pessimism surrounding September's expectations was compounded by macroeconomic events, such as the rise in interest rates in Japan, which generated panic in global markets due to the dismantling of the carry trade .
As a result, the value of the cryptocurrency fell by as much as 25% at its peak. “But later, optimism emerged in the crypto ecosystem, as the market perceived a rate cut in September in the US as increasingly likely, which allowed a partial recovery in the price,” says Pizarro.
The Skipo spokesperson also highlights that this year, both the approval of the ETFs and the fourth halving , play a beneficial role in the price of crypto. Firstly, ETFs now facilitate institutional investment in Bitcoin, which increases investment flows and therefore the demand for the cryptocurrency. Therefore, with less Bitcoins in supply and more currencies, the price goes up.
THE US ELECTION IN THE SPOTLIGHT
Two months before the US presidential election between Vice President Kamala Harris and former President Donald Trump - the first debate between the Democratic candidate and her Republican counterpart will take place tonight - the cryptocurrency market has seen an unexpected ally in the Republican candidate. As we recall, in 2019, then-President Trump criticized cryptocurrencies by calling them lacking real support and being protective assets for illicit businesses.
Since then, a lot of water has flowed under the bridge and at the Republican National Convention in August, Trump's senior campaign adviser Brian Hughes stated that the latter openly supports Bitcoin mining. Other campaign promises include protecting self-custody for the currency and banning the Federal Reserve from launching its own competing cryptocurrency.
In light of this 180-degree turn in the former president's stance, Jaramillo believes that there was some learning involved. “Donald Trump has evolved his opinion on crypto assets by better understanding the system and technology. We also see that large countries like China and Russia are starting to look at Bitcoin and the United States does not want to be left behind in the revolution, in addition to losing the opportunity to be the world leader in Bitcoin mining and with the best regulatory environment for the development of the industry,” he says.
Pizarro, on the other hand, believes that Trump's statements are aimed at winning votes at any cost, especially considering that 15% of registered American voters have owned some form of cryptocurrency, according to a study by Fairleigh Dickinson University.
“However, this paradigm shift is not exclusive to the candidate, but within the Republican Party itself there have been important pro-crypto figures such as Vivek Ramaswamy, defender of innovation and financial freedom. He associates cryptocurrencies as a natural option for Republican values associated with individual freedom and resistance to government excesses,” says the COO of Arch.finance.
In addition, the possible interest rate cut by the Federal Reserve by 25 basis points would boost the price of Bitcoin by the end of the year. Pizarro points out that the fourth quarter is usually an advantageous time for the cryptocurrency, especially in halving years , with returns of 58% in the last quarter of 2016 and 168% in 2020.
“If the interest rate cut does not meet expectations by the end of the year, Bitcoin’s performance could be affected. On the other hand, the US elections are also generating expectations and a Trump defeat could be interpreted as a negative factor for this asset,” he warns.
Looking to the near future, Nicolás Jaramillo argues that cryptoasset investors should keep in mind that Bitcoin's volatility will always be constant, as it depends on multiple factors such as macroeconomic events and degrees of acceptance of the currency. “Furthermore, Bitcoin is still an immature and small asset when compared to other asset classes, so its price movements also respond to that characteristic,” he says.
